Starbucks Antitrust Update

Josh Wright —  29 September 2006

WSJ Law Blog offers a follow up (and the complaint!) to Keith’s post (also check out the discussion in the comments) on the antitrust suit filed by an independent coffee shop owner against Starbucks concerning the use of exclusive leases with landowners. After reviewing the complaint, I agree with Lauren Albert, the antitrust lawyer quoted in Lattman’s story who concludes that: “The facts here don’t really seem to allege a violation of antitrust law.” Indeed, they do not.

Pages 11-13 are particularly telling, i.e. the description of the handing out of free samples in response to plaintiff’s entry as “predatory and retaliatory,” and noting that “the intent and effect is to drive out independently owned coffee shops.” The alleged anticompetitive effect? While the complaint does cite an “espresso blogger” for the proposition that Starbucks intentionally over-roasts its coffee, there is very little here in terms of alleging an antitrust violation (though para. 16 alleges that market output has been increasing, and that Starbucks has been primarily responsible for the growth). As I pointed out in the comments to Keith’s excellent post:

The relevant inquiry, assuming market definition and even market power, is whether Starbucks’ leases can foreclose rivals substantially foreclose rivals from achieving minimum efficient scale. Clearly, they do not . . .. The Starbucks leases do not, and cannot possibly, “tie up� more than a trivial fraction of this real estate. Such foreclosure is a necessary condition of this type of claim and is clearly absent. Competition for favorable locations for coffee shops, even when it includes exclusivity terms in the leases for good reason, is competition on the merits.

I predict a successful motion to dismiss.

6 responses to Starbucks Antitrust Update

  1. 

    The principal set of these I’ve seen are the Iowa Electronic Markets run by the University of Iowa. However, those focus on election results, not court decisions. I don’t believe that I’ve seen one that tracked the Supreme Court, although I may have missed it.

    As for seed money, as an academic you probably have better access to such funds. I’d think that a partnership between GMU Law and Econ departments could seek a grant from DOE, which funded Iowa. I’ll keep this in mind, though, as I talk with my thinktank friends.

  2. 

    I like where you are going with this, and agree that it would be more productive (and profitable! I still haven’t seen a dime from this blogging thing). If you are willing to find the seed money for the exchange, I’m game. Don’t current information markets allow you to do this already, though?

  3. 

    Rather than just violating the rule with impunity, you could do something more productive. How about setting up a futures exchange to trade on the likely outcomes of Supreme Court cases? Then once you’ve established a track record, that information could form the basis for a series of very interesting (and probably more useful than average) amicus briefs.

  4. 

    LOL. Fair enough Montgomery. Such predictions are surely not a positive expected value gamble in the long-run … especially in light of Twombly (for now) and the opportunity to amend. But if bloggers are not allowed to violate this rule with impunity, what would be left for us to do?

  5. 

    Josh, your posts violates a cardinal rule of antitrust litigation: never, EVER, predict a successful motion to dismiss.

    See, e.g., the Twombly case in S.D.N.Y. / 2d. Cir. / S.Ct.

  6. 

    Thanks for tracking down the complaint, Josh. Seems that Belvi apparently *did find* a so-called Class A building in Bellevue that was willing to rent space to it even though Starbucks already was operating there too. So much for the claim that Starbucks locked up all the real estate!

    Belvi’s problem wasn’t getting space, it seems, so much as being able to compete with Starbucks on the merits once it got the space. Belvi is horrified that Starbucks solicited some of Belvi’s customers with free samples of Starbucks coffee. But it’s hard to see how such a standard marketing strategy is “predatory.” Many firms give out free product samples as a way to educate consumers. It’s quite a stretch to call that predatory.

    The class action aspect of the complaint is also mysterious. The larger the class of incumbent and potential entrant firms in the Seattle and Bellevue coffee shop markets, the less convincing a Section 2 monopolization allegation becomes. This is, after all, an industry with low barriers to entry. As the complaint itself defines the relevant class, any existing shop can enter the specialty coffee market simply by purchasing an espresso machine!